Elsevier

Journal of Retailing

Volume 92, Issue 3, September 2016, Pages 352-372
Journal of Retailing

Advertising Effects Under Consumer Heterogeneity – The Moderating Role of Brand Experience, Advertising Recall and Attitude

https://doi.org/10.1016/j.jretai.2016.02.004Get rights and content

Highlights

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    Investigation of advertising effects on heterogeneous consumers’ purchase decisions.

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    Heterogeneity of consumer preferences is found to be relevant in general and with respect to two hypothesized measures of consumer metrics in particular.

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    Advertising effectiveness and managerial implications can be better derived this way.

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    Elasticities of demand are noteworthy improved (considering consumer heterogeneity and consumer metrics).

Abstract

Measuring the effects of advertising on consumers’ purchase decisions is an important yet difficult task in retailing because the effect can depend on both current and past advertising efforts and on the co-occurrence of other marketing instruments. Consumers may have different evaluations and preferences for advertising that can determine its effectiveness, and these can change over time based on factors such as recall of and attitude toward advertisements. The proposed econometric framework examines the purchase decisions of potentially heterogeneous consumers by means of the widely used random coefficient logit model for aggregate sales and information about perceptions of advertising at the consumer level, that is, tracking data. These tracking data assess individual responses to two consumer metrics that are related to consumers’ (I) recent experience with the consumption of the brand and (II) recall and appreciation of advertisements. The empirical application indicates that both consumer metrics and heterogeneity can be important for retailing researchers and managers by revealing the effects of advertising and determining the influence of other marketing instruments, such as price.

Section snippets

Motivation

A central problem in retailing and related fields is measuring the effect of marketing instruments, such as advertising activities, on actual sales of consumer goods. Both managers and academics need to quantify these effects on consumer behavior due to explicit and implicit reasons. First, retailers are interested in determining their own advertising efforts or those conducted in collaboration with brand advertisers to determine the outcomes in proportion to efforts or to improve strategic

Measuring Advertising Effects in the Literature

In many product categories, firms budget invest considerably large budgets in advertising. Usually, the purchases made by consumers are the most relevant outcomes of advertising efforts (Manchanda et al. 2006). Based on theoretical grounds, discrete choice models – in which consumers choose among several purchase options or opt not to buy – are well established in the analysis of demand for differentiated products using aggregate data in quantitative retailing and marketing research (e.g.,

Example Application

We apply the above approach to investigating the effects of advertising on the purchase decisions of heterogeneous consumers to the empirical example of ground coffee in the fast-moving consumer goods category. To this end, we analyze 6,832 aggregate purchase observations in the German market over the period from the first week of 2000 to the last week of September 2001. The average per capita consumption of raw coffee was 6.7 kg, which corresponds to a total consumption of 549,025 tons of raw

Methodological Framework and Implementation

This section provides a step-by-step exposition of the methodological framework for heterogeneous consumers’ purchase decisions. At the end, we give an overview of the modular components of the consumer utility and their relationship to each other (see Fig. 4).

Results of the Empirical Example

We compare alternative specifications using two particularly suited selection criteria: the Bayesian information criterion and the Hannan-Quinn information criterion (Andrews and Lu 2001), denoted as MMSC-BIC and MMSC-HQIC, respectively.17

Conclusion

For managers and scholars in retailing and related fields, measuring advertising effects on actual sales is a key task. However, deriving advertising effects in a real-world situation is in general difficult because advertising can be effective to differing degrees for different consumers due to individual sensitivities toward it. The introduced approach allows for these heterogeneity effects. In doing so, we do not need to make assumptions about how advertising effectiveness changes over time.

Executive summary

Measuring the effects of advertising on consumers’ purchase decisions is an important yet difficult task in retailing because the effect can depend on both current and past advertising efforts and on the co-occurrence of other marketing instruments. Consumers may have different evaluations and preferences for advertising that can determine its effectiveness, and these can change over time based on factors such as recall of and attitude toward advertisements. Our econometric framework examines

Acknowledgments

The authors gratefully acknowledge financial support from the German Research Foundation (DFG) and would like to thank the editor, Murali K. Mantrala, and three anonymous reviewers for their helpful comments on an earlier version of the paper.

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